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After a disappointing holiday quarter performance, athletic apparel retailer Foot Locker, Inc. It plans to make major investments in its brand and core capabilities, while also implementing measures to streamline operations.
The New York-based sneaker company is betting on the strength of its core business and favorable inventory positions to meet its near-term growth targets. Management has launched what it calls a ‘Lace Up’ plan, with strategic and financial objectives designed for successful operations over the next 50 years.
Savings
Over the past twelve months, Foot Locker shares have gained about 38% and maintained their momentum this week amid the market’s mixed response to its fourth-quarter report. Management remarks on the company’s revitalizing relationship with brand partner Nike, Inc. (NYSE: NKE ) had a positive impact on investor sentiment.
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Now, Foot Locker plans to close about 400 underperforming stores in malls and focus on stores for kids and higher-income shoppers. It also optimizes its international portfolio, focusing on key markets and licensed models. Another priority is the expansion of the company’s e-commerce channel, which accounts for about 17% of total sales. The target is to raise the share of digital sales to 25% in the next three years.
Risk
Meanwhile, weak margin performance, reflecting higher markdowns and increased promotional activity, could be a concern going forward. While the retail market is witnessing a return to discretionary spending – after shoppers cut back on non-essential items during the pandemic – high inflation and economic uncertainty will continue to drag on people’s energy.
After entering negative territory in the first half of 2022, same-store sales recovered as the year progressed, with growth of 0.8% and 4.2% in the third quarter and fourth quarter, respectively. Net sales remained broadly unchanged at $2.3 billion in the January quarter while adjusted earnings fell 33% from a year ago to $0.97 per share.. Earnings, however, exceeded estimates, continuing the long-term trend.
Outlook
Gross margin decreased 290 basis points from last year. Going forward, Foot Locker executives predict that net sales and comparable store sales will decline in the single digits in all of 2023. That will translate into earnings of $3.35-$3.65 per share, a slightly lower midpoint. FY22 levels and came in below consensus estimates.
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“We are proud of Foot Locker’s role in influencing and serving the global sneaker community, and next year, we will celebrate the 50th anniversary of the iconic Foot Locker brand. We are incredibly excited to introduce the “Lace Up” plan with a new set of strategic imperatives and financial goals designed to set us up for success for the next 50 years,” said Foot Locker’s CEO Mary Dillon.
Shares of Foot Locker traded up 7% on Tuesday afternoon. They have increased about 14% so far this year.
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